SINTEX INDUSTRIES: Slowdown in Key Biz to Weigh Heavy

Time is not yet ripe for investors to start buying the Sintex stock. However, existing investors may continue to hold on to it

Sintex Industries’ sequential improvement in the June 2012 quarter has been lauded by some, but one must not forget the challenges the company faces. While there is a growing optimism in overcoming these challenges during the course of FY13, time isn't yet ripe for investors to start buying the scrip. Existing investors may, however, continue to hold and wait. 

BUSINESS Ahmedabad-based Sintex Industries is India’s leading plastic goods manufacturer. The company mainly operates in three business verticals viz. building products, custommoulding and textiles. The building products business, which is a relatively new segment, represents monolithic and pre-fabricated structures. The custom-moulding business caters to industries such as automobiles, pharmaceuticals and packaging, among others. In textiles, the company is focused on niche offerings in men's structured shirting in the premium fashion category.
The company has 16 units spread across India with manufacturing presence in the US, France, eastern Europe and North Africa, thanks to its acquisitions.
In the recently-concluded quarter, the company showed a healthy improvement in prefabricated and moulded products, but monolithic and textiles segments were stagnated. The company’s operating performance has been improving for the past 2-3 quarters now. 

KEY CHALLENGES The company faces redemption of FCCBs worth $291 in FY13. It plans to repay the same using internal accruals, existing cash balance and external commercial borrowings (ECBs) to the tune of $110 million. This would increase its interest burden, going forward.
The company is facing a slowdown in its key monolithic business, which contributed less than 20% of its revenues in the June 2012 quarter from 29.8% in FY11 and 24.4% in FY12. No significant revival is expected in this segment till the end of FY13. 

FINANCIALS Between FY07 and FY11, Sintex reported a 40% cumulative annualised growth rate (CAGR) in sales while net profit grew at a healthy 36%. However, the company faced problems in FY12, as interest costs rose on its large debt pile while rupee depreciation led to heavy forex losses. By the end of FY12, the company had brought down its debt burden to 1,272.5 crore, which was less than half its equity. 

VALUATIONS The company is currently trading at a price-to-earnings multiple of 6.9 for the trailing 12-months, which is significantly below its historical valuation. This is expected to remain under pressure until the end of FY13, when further clarity would emerge on its concerns.